Costing and pricing are among the most difficult – and most crucial – decisions new designers undertake in building their first line. The financial logic that goes into launching a successful fashion line can be counter-intuitive and sometimes requires that we readjust the way we approach costing and pricing. After many years helping burgeoning designers get started on their brands, I’ve come up with a list of the 5 most frequent false starts that hinder new designers.

1. STOP ASKING: “How much does it cost?”

The problem with the “how much does it cost”question is that costs are just one part of the equation. Costs alone won’t tell you if your business is viable. Is $1,000 a lot? Or is $10,000 more realistic? Do I really need $100K to start this line? When you look at costs first without understanding your business and how your business fits into the market at large, you’re really only thinking about your current spending habits. But starting a business isn’t the same as shopping at Forever 21. Comparing a capital investment in your business to the cardigan you bought last week isn’t the best way to grow a lucrative business.

Instead, everything comes down to risk. The question isn’t, “How much does it cost?” but “How much am I willing to invest – or risk – in the business?” If that number is identifiable as one part of your overall business objectives, and you’re clear about it, then congratulations, you now have what we call a budget. Your budget will drive your decision making and, once you decide your budget is the #1 priority over price or quality, then you will find a way to either:

Make costs work within your budget, or

Realize this business is not for you and you want to start a service business that requires less startup capital

2. START ASKING: “What is a customer willing to pay for my product?”

Many new designers fall into the habit of looking at pricing as “cost plus”: understand the costs and then add a profit margin, but there are two main problems with this approach. First, this approach mentally chains you to the product, rather than to the customer, and leaves you vulnerable to changes in customer preference. Second, when costs increase, and they will, you will suffer from established prices and lower profit margins. “Cost plus” leaves you doubly at the whim of the market. Instead, the question is, “What is a customer willing to pay for my product?” and for that you have to roll up your sleeves and do some research. The first follow-up question is:

“Is there something comparable in the market to my product?”

If YES, we’ve got more to figure out:

What products in the market are competing with your’s and how are your’s different?

What are the price points of the competing products on the market?

Who is buying these competing products? Is it a different demographic than you expected?

List out these answers in an excel document to start putting together your market research. This is preliminary, but will give you a great starting point for pricing your product. Once you know your retail price points you can start to build out a budget for product cost, operations, marketing, and more.

IF NO:

Then, good news! You now have the opportunity to pave the way for something unique and entirely different than anything in the market. With no competition, you’re in a great position! On the other hand, you may not have a market for your product either. Your job will be to make your prototype sample and take it out into the market to test viability before you begin to produce at scale. For steps on how to do this, see last week’s post on how to start a fashion line that sells.

3. Remember that developing your product has a cost separate from production

While you may be excited to get started, try not to get ahead of yourself! Before producing 300 units to turn a profit, you need to build prototypes and samples of your products. This stage is called the product development stage. It is the most important phase in the creation of your business. This is where you get to source fabrics, engineer your fit, and create the styles you’ve envisioned. The product development costs vary according to how many products you’re developing, the complexity of the products, and the source materials. At the end of the process, you’ll understand exactly how much your cost per unit will be when going into the next big stage: production.

If your company wants to stay lean, the best recommendation is not to rush into production after creating your samples. Instead, go to the market and talk to your consumers to gather insight. It would be even better if you can get pre-orders! Take this time to create strategies to build awareness and buzz for your product. Use brand ambassadors, social media advertising, and sampling events to create demand and test marketing channels and messaging. While these ideas can be costly, it’s better to lose a few thousand to find out that your idea isn’t viable than to spend a hundred thousand only to realize nobody wants to buy your product. Include in your budget line items for market fit testing and decide what success would look like.

The ideas below will cost you almost nothing:

Convince retail shops to let you put your samples in their shop and watch how customers react to your product

Give out gift cards and other promotional goods to potential consumers to take surveys about your product

Go out and earn your first paying 30 customers and make them excited about your product. Give them something special for believing in your vision and pre-ordering. Just make sure you and your manufacturer are very clear about how many weeks production will take so you can keep your delivery promises.

5. Invest 100% of the profits back into your company

When starting out, it is absolutely important to put any profits back into the company. By putting every cent that you make back into your business, the business revenue has a chance to stabilize. A stable business can pay dividends throughout your life. In addition to having a marketing budget from the get-go, use the profits from your sales to invest in more marketing, development, and production where needed. Remember not to overproduce and, once you have a hold on inventory, make sales and marketing your number one priority.